Why a tax abatement should be on your condo or co-op wishlist
- Apartment buildings with tax abatements will have lower or reduced carrying costs
- Tax abatements run for five to 25 years and your payment gradually increases over time
- Plug the term into your search filters or use a broker to find places with tax abatements
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Tax abatements may not sound as thrilling as heated floors, marble countertops, or a state-of-the-art fitness center, but when you understand how they work, you may want to add this financial perk to your search parameters when you're hunting for a condo or co-op to buy in New York City.
Tax abatements exempt you from paying property tax or reduce your tax bill to a fraction of what it would be without the abatement—resulting in big savings.
When Emporia Meng, a digital advertising manager, was looking to buy last year, the tax abatement at One Manhattan Square on the Lower East Side was a huge selling point. She paid $1.4 million for a one bedroom and the abatement substantially lowered her carrying costs.
How does a NYC tax abatement work?
Tax abatements run for five to 25 years and they phase out over time. This means you will see your property tax payments gradually increase. The major caveat is that when the tax abatement does finally end, you will have to pay the full amount of tax. In the meantime, you can enjoy steady savings with lower carrying costs.
It's not a good idea to upgrade to a pricier place simply because you have an abatement: Buy the apartment you could afford if there were no abatement and then the payments hopefully won't stretch you beyond your budget when the abatement expires.
How can I lower my property taxes in NYC?
One of the most common tax abatement programs over the past few decades is called the 421-a, given to new condos in exchange for setting aside at least 20 percent of the units as affordable apartments. The program expired in June 2022 and although Governor Kathy Hochul proposed a similar alternative to replace it, that hasn’t yet happened.
Apartments with tax abatements are still coming to the market because buildings that were eligible for the abatement when construction started are still being completed. They need to finish construction by 2026 but it is possible this deadline will be extended to 2030.
To search for apartments with tax abatements, you just need to add this term to your search filters. A developer will be eager to amplify information about a tax abatement so if there is one, you'll typically see the words in all caps in the building's marketing material.
Your broker should also be able to help you find what you're looking for if a tax abatement is a priority.
What happens when a tax abatement expires?
The offering plan will state what the taxes are for the building. Property tax rates change and to figure out what you'll pay once the abatement expires you need to multiply the taxable value of your property by the current tax rate for your property's tax class.
It's a bit more complicated if your abatement is expiring in a co-op because it is structured as a corporation and the tax will be relative to your share allocation. Divide your share allocation by the total shares for the building to find out the percentage of tax you will owe.
To get an estimate of your property taxes, you can use a shorthand method of looking at similar apartments in the neighborhood and seeing what the taxes are on comparable units.
Are there other ways to lower carrying costs in NYC?
As apartment prices rise, buyers in New York are increasingly looking at carrying costs as a way to exert some control over the market. High monthlies can affect your debt-to-income ratio, which can then impact whether or not you meet the financial requirements of a co-op board or a lender.
Aside from tax abatements, another option to lower your monthly payments is to revise your list of must-have amenities or scale them back completely. Amenities can be costly to maintain and can increase your monthly financial commitments to the building.
Another tip is to understand the financials of a building before you commit to buying. Carrying costs will typically go up over the years but depending on how the building is run—whether it has a healthy reserve fund for example—those increases can vary in size.
A building that's well managed should see fewer steep increases in carrying costs. This might mean the board has revised its policy on the flip tax to increase revenue for the building. Other options for a board include the sale of air rights or refinancing a co-op's mortgage to increase the building's reserve funds.
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